PHOENIX - Omnibus accounts consolidate the trade activity of multiple shareholders in an investment vehicle into a handful of trades, making it difficult to identify individual shareholder activity. How do in-house counsel and mutual fund boards make sure that their omnibus accounts are on the up and up with regulators?

Legal eagles in the mutual fund space today tried to give an audience of mostly their peers at the Investment Company Institute's Mutual Funds and Investment Management Conference some sound advice on avoiding the potential pitfalls of omnibus accounts.

Jesse Cole, a managing director at Goldman Sachs & Co., said that omnibus accounts are currently handled by banks and third-party administrators and cautioned the audience to “spend more time with your operations group”.

Kate Ives, director of internal audit at OppenheimerFunds, Inc., said that “nobody goes and visits every omnibus provider. But do due diligence on your providers to access where the risks are. Broker-dealers are in a higher regulatory environment but TPAs are not.” 

And with more registered investment advisors moving their into the institutional share class business, Ives cautioned the audience to focus on distinguishing discretionary advisors (ones who will more their clients as they see fit) from directed advisors, who take direction from their clients.

“You can’t tell the difference between them and the biggest problem is identifying them through omnibus accounts. They are not broker-dealers so they’re not under the same recordkeeping regs that broker-dealers subscribe to. Monitoring excess trading activity is a huge area,” she said.

Panelists also said they were not clear if transfer agents are required to review suspicious activities in Omnibus accounts. “Be aware of information you’re getting in omnibus accounts. We are looking for suspicious activity but we’re not confident we will find them because of the structure of those accounts,” said Ives.

As a result, she said her firm has created a whole new unit to oversee the people who are supposed to oversee omnibus accounts.



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